Vermilion Int'l Compass: Global Equity Strategy
Global Pullback Continues; Focus on DefensivesIn our previous Int'l Compass (March 2) we discussed how the pullback in global equities was in full swing as Europe (EURO STOXX 50, STOXX Europe 50, DAX, etc.) and the UK (FTSE 100) displayed 4.5-month uptrend breaks and were joining the pullback that had already started on the MSCI ACWI. At the time, we expected this pullback in the MSCI ACWI (ACWI-US) to move down to $86-87 at minimum, and potentially $84 (December 2022 low) or $75-77 (the 2022 lows). ACWI-US broke below $86 and is approaching $84. $84 will be an important support level to monitor, but if it breaks, the $75-77 level is still firmly in the cards.
Europe/UK, MSCI ACWI. We previously discussed that we are buyers on pullbacks as long as the FTSE 100 is above 7700, the STOXX Europe 50 is above 3800, and the EURO STOXX 50 is above 4000. These critical lines-in-the-sand have started to break, with the EURO STOXX 50 the only one still above support (though testing 4000 now). This recent banking problem has provided the spark needed to send global equities potentially considerably lower. We are expecting 4000 to break on the EURO STOXX 50 and we would step aside where possible. In terms of the MSCI ACWI (ACWI-US), in early January we discussed our expectation for a rangebound market in 2023, with $93 capping upside and $75-77 capping downside; we nailed the $93 top, and now a visit to $75-77 is growing increasingly likely, particularly if $84 breaks... see charts below.
Buying Shanghai Composite. With global equities pulling back, China's Shanghai Composite is becoming more attractive, both in terms of price and RS -- add exposure. 3215 is support that we need to see hold in order to remain constructive... see page 2.
Commodities Have Topped. The Bloomberg Commodity index (DJP-US) has broken below major support at $32 and as long as it remains below $32 we see a major top in place. Long-term support comes in at $25-$26 and we are targeting this area, at least initially. WTI and Brent crude oil are similarly breaking below major support -- avoid. On the other hand, precious metals are finally showing signs of bottoming (more on that below).
Actionable Themes: Defensives. With the global equity pullback in full swing, we want to hide out in defensive areas including Consumer Staples, Utilities, precious metals mining, and waste services. In today's report we highlight buys within these areas
CEZ Group is a dynamic, integrated electricity conglomerate based in the Czech Republic and with operations in a number of countries of Central and Southeastern Europe and Turkey. Co. is an international group consisting of nearly 120 companies, Czech and foreign. Co.'s primary activities involve the production and transmission of electricity through nuclear, coal-fired and hydro power stations; production and distribution of heat and processing of secondary products generated during the production of electricity and heat as well as coal mining. Co. has operating companies in Poland, Bulgaria, Romania, the Netherlands, Ireland, Germany, Hungary, Albania, Turkey, Serbia, and Slovakia.
National Grid is a holding company. Through its subsidiaries, Co. owns and operates regulated electricity and gas infrastructure networks in the U.K. and the U.S. Co. operates through five business segments: U.K. Electricity Transmission, U.K. Gas Transmission, U.K. Gas Distribution, U.S. Regulated, and Other Activities, primarily relating to non-regulated businesses and other commercial operations not included within the above segments, including: the Great Britain-France electricity interconnector; U.K. based gas metering activities; U.K. property management; a U.K. LNG import terminal; U.S. LNG operations; and U.S. unregulated transmission pipelines, together with corporate activities.
Vermilion Research delivers timely, actionable, and unique research inputs to professional investors. Our research strategists highlight securities which we believe are at major inflection points, based on our various proprietary technical indicators, and offer asymmetric risk/return profiles. We believe our research methodology, which is not limited by industry sector or market capitalization, enables us to deliver superior investment recommendations.
Our process begins by organizing all actively traded stocks into coherent sectors, then into logical industry groups. We then apply our proprietary relative strength tools to identify developing price trends. Once attractive trends are identified within a selected sectors or groups, we screen for individual stocks which we believe offer the best risk/reward profile. Vermilion offers U.S. and global equity market research products. Vermilion’s research team, which has received numerous awards and accolades, has a combined 70 year of experience in the analysis of investment securities.
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